tv Nightly Business Report PBS June 24, 2011 7:00pm-7:30pm PDT
>> tom: wall street wraps up a whip-saw week as the health of u.s. economy feeds uncertainty. >> the good news of course is that the number are positive, the bad news is that they're getting smaller. that's certainly a drag on the u.s. economy and it doesn't feel good for most. >> tom: meanwhile, the federal government is searching for answers from google about its dominance on the world wide web. it's "nightly business report" for friday, june 24. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by:
this program is made possible by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt >> tom: good evening and thanks for joining us. my colleague susie gharib is off tonight. within the concerns shifted to italy, trading of italian bank stocks was halted due to volatility. >> we say awe rare sign of economic activity, new orders for manufactured goods rose 1.9% last month after dropping 2.7% in april. on top of that
on top of that it turns out the economy grew at annualized rate of 1.9% in the first quarter. that's slightly faster than originally reported, but much slower than last year's pace. and, as suzanne pratt reports, experts are fretting about where the economy goes from here. >> reporter: this was not how the recovery was supposed to go. two years after the great recession, the u.s. economy is only sputtering along. history suggests it should be supercharged. take a look at this chart of u.s. g.d.p. growth. the numbers turned positive two summers ago. but there's been little acceleration in output, which is typical of most recoveries. economist beth ann bovino says we're traveling at half-speed. >> you'd normally like to see about 5% growth on average for the united states. just to keep up with the average. so, the last year was close to 3% was not nearly not near that. and, right now it's coming in lower than that, we're very subpar in terms of growth. >> reporter: other economists are less concerned about subpar growth.
they say after a deep recession, it makes sense the rebound is lackluster. economist conrad de quardos says the more worrying part of the economic picture is the lack of job growth. >> given the damage that was done to the labor market during the recession, we need a much stronger pace of growth in the labor market that what we've seen to sort of the dig ourselves out of the hole that we're in. >> reporter: and, some experts say until the housing sector digs out of the cellar, the economy will continue to slog along. other headwinds include the recent slowdown in manufacturing, which had been turning around and higher gas prices which keep americans tethered to their homes. to be sure most economists are not expecting another recession any time soon. >> i now have 2011 growth looking at about 2.6%. very subpar, it's certainly not what you'd like to see in a recovery, but again it's still positive numbers and at least that's positive. >> reporter: dequadros thinks growth will pickup in the second half of the year and into next. he's expects g.d.p. to average
3.5%. >> i would have liked to see something much more robust and the reason is because on a 3.5% type growth rate, we're still going to be seeing an unemployment rate that probably going to be above 8% at the end of 2012. so, 3.5% is just not fast enough. >> reporter: experts say another problem for the recovery is that americans are depressed. consumer confidence is still low. and, when that's weak, people don't spend or invest. suzanne pratt, "nightly business report," new york. >> tom: here are the stories in tonight's n.b.r. newswheel: wall street ends a rough week in the red: the dow fell 115 points, the nasdaq was off 33 and the s&p 500 lost 15. as for trading volume, it was the heaviest of the week. russell investments rebalanced its benchmark indicies leading to an increase in trading as fund managers moved to match the new weightings.
1.7 billion shares moved on the big board over three billion on the nasdaq. for the week, the dow was up in just two sessions. but the selling since wednesday took it down .06% this week. the nasdaq fought the weak tape. it gained 1.4% since last friday. the s&p 500 shed a quarter of 1% this week. president obama is taking on the stalled debt talks. he's invited top republican and democratic senators to pick up where talks broke off yesterday. he asked senate majority leader harry reid and republican leader mitch mcconnell to separate discussions on monday. and rising commodities prices have coca-cola raising drink prices. the company said prices will go up by 3% to 4% late next month. still ahead, hewlett packard tries again to get into the tablet computer market and how the holidays are stacking up for the consumer electronics business.
>> tom: google says uncle sam has it under the microscope in a blog posting today, the web search giant acknowledged receiving notice yesterday the federal trade commission has begun a formal investigation into its business. the inquiry centers around google's dominance of the internet search market. darren gersh reports. >> reporter: google famously says it's code of conduct is "don't be evil." now the federal trade commission is investigating whether the search giant lives up to that promise. google controls 65% of the search engine market and the question anti-trust expert robert lande says will be how google uses that power. >> if you think you are getting a good search, but it's leading you to a google product, that's like fraud and that's one way of describing what i think will be the essence of the f.t.c. investigation. >> reporter: google argues it's all about searching for better ways to serve consumers. david balto was a top anti-trust expert at the federal trade commission.
he predicts this investigation will end by concluding google actually protects consumers. >> certainly there are some competitors or advertisers who are unhappy, but consumers aren't. surveys that have been done of consumers have found that consumers see no need to regulate search. consumers are very happy with the product. >> reporter: in the '90s regulators took on microsoft in an epic antitrust battle that just ended officially last month. google may soon have to make the same choice microsoft did settle or fight the government for years. lande says google is already arguing that any monopoly power it has can change with the click of a mouse. >> microsoft said that 20 years ago, and they still pretty much have a monopoly in p.c. operating systems. it's true in theory, but nobody thinks anybody's going to put google out of the search business any time soon. >> reporter: it's like comparing pluto to earth. balto worked on the microsoft case, but believes google is different. microsoft used it's monopoly power to shut out competitors. balto says google doesn't.
but if regulators do want to restrain google, balto says they will run into the same problem they had with microsoft: government lawyers aren't software engineers. >> consumers will be worse off if there is a national nanny second-guessing google's decisions on how it operates search. >> reporter: balto argues google also protects consumers from scammers and online frauds that try to manipulate search results. but competitors charge google also has the ability to put them out of business if their results don't show up here. darren gersh, "nightly business report," washington. >> tom: banks trying to avoid tougher regulations suffer amnesia. that's the last assessment from one of the chief banking watchdogs. sheila bair gave her final speech as f.d.i.c. chairman today. bair played a key role in regulating banks during the financial crisis. as she leaves, bair fired back at bankers who argue requiring banks to keep more cash on the sidelines will hurt lending and the economy.
>> this is a terrific example of the sort of static, short-term thinking that got us into this mess in the first place. there is a lot of recent research that shows higher capital requirements in the range that we are talking about will have a very modest effect on the cost of credit. it will create a large net improvement in the long-term economic growth by having more capital lessens the frequency and severity of financial crises. if your time horizon is anything more than the next six months or so, i think that's a pretty good tradeoff. >> tom: the federal reserve is in the process of deciding how high to set capital standards for banks that are so big their failure might jeopardize the entire financial system. the f.d.i.c.'s number two, vice- chairman martin gruenberg has been nominated to replace bair.
here's where the buyers were again today-- the bond market. this is the past year of the yield on the 10-year note. today, it dropped to its lowest interest rate since late november. the energy sector was the weakest today even though oil was up a fraction. refiners tesoro, valero and sunoco were among the biggest drags on the sector. 3.5%. after yesterday's big drop in oil, the commodity futures trading commission announced it was reviewing market data to see if traders may have received early word of the international energy agency's plan to release oil into the market. airline stocks resumed their drop, including united continental. it fell almost 8.5%. its average passenger revenue growth has slowed down.
tech stocks slumped as well with semiconductor stocks leading the way. this exchange traded fund includes more than a dozen leading chip making stocks. it fell over 2% thanks to the disappointing earnings from memory chip maker micron last night. let's look at that fall in micron off 14.5%. volume was more than triple its usual pace. it's at its lowest price since november. also weighing on tech today, business software. oracle sold off after its earnings call late yesterday. shares fell 4%. german competitor s.a.p. shed more than 2%. salesforce.com fell 1%. cisco systems was the biggest loser among dow industrial stocks falling 3.5%. volume was huge. long-time consumer advocate ralph nader wants cisco to increase its dividend. the company has $43 billion in cash. shares are less than 20 cents from a new 52 week low.
the three-way effort to get a new, potentially less habit forming version of oxy-codone approved failed, sending this trio of stocks down. the f.d.a. rejected a new drug application for the treatment from pfizer and pain therapeutics. pfizer fell almost 3%. pain therapeutics shed more than 42%. the medicine uses technology from durect, which lost a third of its value. and that's tonight's market focus.
>> tom: hewlett-packard hopes this time is the charm for its tablet computer business. h.p. takes another swing at apple's ipad and other touch- screen tablets next week when it releases its touch-pad. this device is bigger and cheaper than h.p.'s most recent tablet effort, the slate. the big difference: it's the first tablet to run hewlett packard's own operating system. h.p. inherited the web o.s. software when it bought palm last year. the touch pad enters a competitive market where apple has had a long lead, especially in terms of software applications or apps designed for tablets. apple's ipad dominates with more than 90,000. google's android system has about 100. the vice president of hewlett- packard's web o.s. developer relations business unit. richard kerris is confident in h.p.'s market position. >> applications are a key part as well as content.
we have a lot of applications. we have over 300 applications at launch. the whole myth about thousands, hundreds of thousands of apps-- nobody uses that many. what you have to have is meaningful applications that make a difference to the things that you do. >> tom: the h.p. tablet goes on sale next week. the launch of new consumer electronics devices could pick up later this year, including 3d televisions, video game services and maybe a new iphone. we spoke with gary shapiro, c.e.o. of the consumer electronics association and author of "the comeback: how innovation will restore the american dream." we have signal manufacturing in japan for the components level. certainly a couple companies like panasonic and canon has taken the brunt of it most other companies and product
categories are doing pretty good. >> this happened at a key time, of course, the ramp-up ahead of the holidays. this week the dutch electronics giant phillips warned of quarterly profits less than anticipated due to european consumers. what is the status of the u.s. electronic consumer as you project into the holidays? >> you know, america consumers are holding up pretty good. they're down in terms of their spending as they are in every category. i think with us it is a little bit less. we are in the 15 to 18% down. a lot of that, though, isn't exactly in terms of what they are buying. they are still buying the same number of units but the prices have fallen pretty dramatically. so they are buying at a cheaper price. >> tom: so talk to us about that. volume sounds like the volume of goods still pretty good for your members of your trade organization. but it's pricing that is down. what kind of impact is that having on margins? >> well, obviously that does affect margins. it depends on the category. it's a little inconsistent. certain categories like
discreet audio components are doing fairly well because of the explosion in flat screen tv sets so people really want a great audio component. but on the price of the screens themselves there is a tremendous amount of competition out there among the screen sellers. and that obviously presses on margins. this is a business where you ino vate and you die or you cut your cost and you die. so it is a pure competition in the marketplace. >> what about the retail environment, again as we ramp neup that holiday season. you mentioned volume. we mentioned price. what about at the retail level. what are those members telling you? >> well, certainlies there a a tremendous competition in retail. some of the styles like circuit city have gone away and best buy, target and wal-mart have pikted up some of the slack. the independent dealer is certainly under pressure there. but they're providing a more higher value add service. and then the internet retailers are coming in pretty strong right now. >> tom: your trade group looked at what's hot, what's not. sales for plasma televisions, tablet computers and smart
phones have been pretty good. lcd-tv sales traditional, personal computer sales not so great. what does this portend for what consumers will find in stores and what investors will see in terms of profit when it comes to holidays? >> well, clearly there's a shift going on in terms of the screens and what's big. the smart phones are clearly big. one out of two americans will have a smart phone by the end of next year. it's one out of three now. in terms of the introduction of the ipad and other devices like that it's just been huge. that's taken a little bit of the way of the market from laptops and then we're seeing that. and in the screen area t is, they're getting bigger and they're getting cheaper. and you know, americans are pretty much filling their homes and filling their walls with these tv sets. >> our guest gary schapiro, head of the consumer electronics association. here's what we're watching for next week. our friday market monitor guest is john dorfman chairman of thunderstorm capital.
on the economic calendar, key readings on housing and the consumer with may's pending home sales index. the april case-shiller home price numbers and june consumer confidence. monday, we go beyond the scoreboard with our weekly look at the business of sports. new planes made by airbus will be covered in alcoa aluminum. in a $1 billion multi-year deal, alcoa will provide the jet maker with aluminum sheeting and alloys. airbus plans to use alcoa's products on virtually all of its commercial jets. those alloys are said to be 10% lighter than the composites being used by other manufacturers. it's back to jail for former media mogul conrad black. a federal judge today said black will have to serve 13 more months on his convictions for fraud and obstruction of justice. he's already served over 2 years for cheating shareholders of newspapers he owned out of money. last october, a federal appeals court threw out two fraud counts against him. his total jail time was cut today, from 72 months to 42 months.
money. alan lancz is the director of research at lanczglobal.com. >> tom: welcome to nightly business report. nice to see you. >> thanks, tom. >> tom: so when we spoke six months ago you were looking to get defensive. is being protective in the market today still the right strategy? >> i think so i think we've still got some tough sledding. half of the gains in the s&p 500 are purely from dividends. so if you didn't abide by our recommendation to get defensive and look at dividend-paying companies, i think you rode the market up 8% and then back down. so it's going to be more of that 2 steps forward, one step back. >> but there is a difference between being defensive and looking for dividend payers, isn't there? >> oh, yeah, definitely. i mean it's a combination of being defensive, you know, as far as with the sector and your selections. but dividends a big component of that defense as far as to protect the downside is important in a year like 2011. >> and the sell-off we've
seen just this month in june. technology and the energy sectors are the two worst performing. technology growth, energy, economically sensitive watch. what do you make of that? >> well, i think investors got a little ahead of themselves with the economy and things that if we're out of the woods, if we're going to be moving up and things are back to normal. and that's to the going to be the case. we have a lot of headwinds going into the second half of 2011. and including qe2 leaving and what's going on with the european sovereign debt. so you know, when you start looking at that, you know, i think you got that challenge and investors are starting to realize that. and that's why you have the sell-off. >> tom: you mentioned the greek uncertainty, qe 2b, quantitative easing -- the federal reserves bond buying strategy winds up next week. we didn't hear a lot of confidence from the federal reserve this week. we heard patience. should investors be patient and if so, what does that mean for a holding period? >> well, yeah, you have to look at it one, two years minimum. i-- you know, so from a patience standpoint i think if you are's investing now,
there's downside. this reminded me a lot like last summer, you know, when we talked after the flash crash when the confidence was shaken and you know there were good buys throughout the summer and then qe2 came and then we had the rally. i think it's going to be similar. so taking advantage of the weakness but being pairbt because you don't know where the bottom is. >> tom: two of your new stock picks have shown considerable weakness. aig, american international group one of those companies that still owned considerably by uncle sam. we know the federal government will be selling its shares. you are a buyer of aig, why sm. >> well, we like t it's been cut in half. it was over 6 o-- 60, now in the 28, 29 area. we think the value, book value will be 37, north of 37. so again, buying on weaknd-- weakness. it is a situation where i think they have more globally than what investors expect. i like those low expectations type companies. >> how about general motors. trading below its ipo price. and again one that is now out frund uncle sam.
what dow expect from gm? >> well, we recommended selling it after its ipo when it was traded in the high --. >> you're a buyer now. >> i think the timing is good. under 30. so again, low expectations. you lost ten points on evaluation. and i think long term again, you know, there's going to be good rewards. no dividends prior to-- as opposed to our other recommendations. but i think good upside potential for the long-term. >> one dividend stock you do like is telephone data services better nonfor its u.s. cellular wireless division has been a choppy stock. telecoms haven't provided a great amount of defensiveness for portfolios. a small yield on this one. what dow expect. >> well, they've increased their dividend 37 years in a row, tom. i like that increasing dividend. and 37 dollar book again trading around 30 or less. i think it's hard to build a scenario where you don't make money long-term. >> tom: let's look at your previous picks from back in december of last career. you liked four stocks. a couple of them big
dividend payers, pfizer up 20%. congratulation. merck however has been down by 2%. hologic up 12% and exelon up. dow still like these. >> i like them all. we've taken profits in some of them partially. >> tom: which ones. >> a little exelon and pfizer. but still own all four and still like them. wouldn't buy them at these levels but on weakness we still like them. >> tom: you owned the sever enstocks mentioned. >> yes, own them, family-owned, fans, clients own them. >> tom: we'll catch newspaper six months. >> sounds good. >> tom: ou market monitor alan lancz. that's "nightly business report" for friday, june 24. i'm tom hudson. goodnight, everyone. we hope to see all of you again next week. "nightly business report" is made possible by: